Blockchain: practical application in the pharmaceutical industry

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IBM recently announced its latest blockchain initiative in partnership with KPMG, Merck and Walmart. The consortium’s goal is to develop a pharmaceutical blockchain platform that can track drugs as they move through the global supply chain, from manufacturer to end user.

Blockchain has the potential to transform industries. According to the International Data Corporation (IDC), worldwide spending on blockchain solutions is expected to exceed US$2.9 billion (£2.4 billion) in 2019. While IBM’s initiative is not the first of its kind, because of the players involved the pharmaceutical industry has been put on notice.

A brief look at blockchain

At its core, blockchain is a distributed ledger that can be used to record transactions in a series of blocks. Each block contains a list or ledger of information in relation to whatever the context in which the blockchain is being used. For example with bitcoin, the blocks are a ledger of all bitcoin transactions. Every time a bitcoin moves between one person and another, an entry is made on the ledger to record it.

In light of recent cyber security attacks, one potential concern is the security and integrity of the data recorded on the blockchain. Unfortunately for ambitious hackers, a key feature of blockchain is that each block is immutable, making it virtually impossible to change an individual ledger entry without changing all the records linked to it. If a record is altered, that record will become invalid and the network will know right away. Additionally, the decentralised nature of the blockchain means that there is not a single point of entry into a blockchain ledger. It would require a significant amount of computer power to access every block within a certain blockchain and alter them all at the same time.

The consortium plans to assign each drug a unique identifier that enables all stakeholders to track a product through the supply chain, thus creating an easy-to-follow audit trail for authorities and end-users globally. The information recorded on the blockchain can be accessed by those stakeholders, with the unchangeable nature of blockchain acting as a manner to verify authenticity amongst the parties. This would control quality, ensure drug safety and prevent the circulation of counterfeit drugs.

The Food and Drug Administration

Blockchain has been brought to the forefront as stakeholders try to find solutions to comply with the Food and Drug Administration’s (FDA) Drug Supply Chain Security Act 2013 (DSCSA) which impacts the global distribution to pharmacists. The DSCSA requires the pharmaceutical industry to develop an ‘interoperable system’ that can identify, track and trace prescription drugs and vaccines across the supply chain by 2023.

As expected, pharmaceutical companies are concerned about the potential privacy implications of having their information in a public system. IBM hopes that their blockchain pilot can ease these concerns, as the technology will allow companies to place commercially sensitive information onto the blockchain platform in a way that ensures privacy.

Walmart’s food safety blockchain

Walmart and IBM previously collaborated on the development of the IBM Food Trust, a blockchain technology that tracks food along the supply chain. Food Trust, which went live in October 2018, has been successful, quickly identifying bad batches of produce (such as those containing foreign objects or being exposed to poor food safety standards compliance) and removing those goods from circulation. Walmart and IBM hope to leverage the experience gained in developing Food Trust in other sectors, such as the pharmaceutical industry.

Implications for insurers

Insurers should welcome the use of blockchain with open arms, particularly in the product liability sector. On the underwriting side, a transparent and efficient supply chain will allow insurers to more accurately assess risk and improve their review of supply chain activity.

On the complaints management side, the use of blockchain technology will allow insurers to track back through an insured’s supply chain by utilising the easy-to-follow audit trail. Insurers would then be able to identify where fault lies for a defective product, for example, whether a defect was caused by poor quality control in the manufacturing stage, whether counterfeit parts were used, or whether issues arise from a particular distributor. A centralised platform will also assist in record management and complaints logs, resulting in lower investigatory and legal costs.

The key to success

The key to success for any pharmaceutical blockchain platform will be collaboration. Pharmaceutical companies will need to get on board, but a focus on preserving commercial assets may cause many companies to be hesitant. IBM’s Food Trust has largely been successful because some of the biggest players in the industry are signing up. Albertsons Companies, the world’s second-largest supermarket by sales, joined the Food Trust Blockchain in April 2019, joining the likes of Carrefour, Nestle and Unilever.

This is not the only pilot program in the pharmaceutical sector, with 20 FDA DSCSA projects (with at least six utilising blockchain) being unveiled since the FDA announced the DSCSA. Walmart is involved in another consortium, MediLedger, with over 20 members including Pfizer, Amgen and Gilead on board. We wait to see how these programs develop, and the use of blockchain in general, with further commentary on its impact on both the marine and healthcare sectors to follow.

This article was co-authored by Alex Cooper, Trainee Solicitor, London